Techcrunch ran this story the other day.
In it, they discuss how Jeff Bezos discusses there are two types of company:
There are two types of companies: those that work hard to charge customers more, and those that work hard to charge customers less. Both approaches can work. We are firmly in the second camp. -Jeff Bezos
The problem is, there are three types (well, there are much more, but for the purposes of this post, let’s stick to three), and Apple is the third type, not the first. The third type is simple: give customer’s great products they will love and use. Charge appropriately.
The problem, to my mind, for Amazon, is wafer-thin margin’s simply don’t equate to customer satisfaction, this is particularly true if, as the press are reporting, Amazon are actually losing money on the Kindle Fire. While loss-leading is nothing new, this works less well if you require an ecosystem to make the product complete (Apple does this well, Amazon have a long way to go), but all ultra-low margin’s bring you is pain.
Amazon and industry commentators are adamant that the Kindle line, including the new Fire, doesn’t actually compete with Apple. I’d agree. However, I would also agree that I’m unlikely to want both products to cart around with me, so in a sense they do compete, because few people will own both.
At the end of the day, it is nothing to do with how much margin is in each product, it’s down to how much users love and use the product. If you can keep reasonable margins on that too, you’re in a stronger position. Apple wins so far, but it’s too early to say who’s going to win this race.
It also true that, end users don’t much care at all about how much margin you make; what they want is a product that meets their needs. Right now, Apple is pretty much doing that, and Amazon are having a pretty good crack at delivering too. Amazon’s product is lacking, though: Google’s App Store is blocked, for one big missing piece of the jigsaw. It’s understandable, Amazon are loss-leading to give it a platform to sell content on, where margins can be juicy, but that missing piece might just be the straw that breaks the camel’s back. The race is on.
There are no rules here, though, only results. One thing I hope we all can agree on: the race is starting to get interesting.
Image credit: Kindle vs Ipad by kodomut on flickr. Creative commons with attribution license usage.
